Hype, fraud and theft are always rampant on Wall Street

By Cody Willard

Introductory note: I suppose all the spiking penny stocks from sectors as disparate as eCigs to fuel-cell forklifts really are a sign of the ongoing bubble-blowing bull market. In this this week’s Revolution Investing, I explained how important it is to know the difference between investing in real companies vs. those penny stocks. And after getting yet another round of questions and pleadings from penny stock speculators, I realized this was probably a good newsletter to reprint for the general public. If you’d like to learn more about my Revolution Investing approach, be sure to check out the newsletter published here on Marketwatch.

Let’s review what the purpose of our Revolution Investing approach really is. And be sure to check out the new Scutify iPad app.

We’re trying to find the most innovative companies in the most disruptive and revolutionary industries before the rest of Wall Street catches up to the trend. And more specifically, in today’s markets with the Fed’s endless money-printing and lending at 0% rates to banks and all the other artificial help of QE, stimuli, targeted tax breaks for giant corporations, etc.

Some of our past successes have included getting into Google on its IPO day, Apple at $7 a share, getting us positioned to profit in front of the ongoing bubble blowing bull market five years ago, our 3-D printing stock basket from two years ago, and the booming App Revolution Bubble that is also still ongoing.

A couple weeks ago, I started trying to get us positioned for a new Drone Revolution Bubble, that will likely be the next “Big Thing” in tech, and we’ve already got the two best suppliers into the industry.

But that doesn’t mean we just blindly plow into the stocks in those Revolution Investing sectors. We have to be careful about who we’re betting on individually, in addition to managing our portfolios with time, price and Fed ramifications. Just a couple weeks ago, I removed one of our biggest winners from the aforementioned 3-D printing stock basket, 3-D Systems
/quotes/zigman/5280737/delayed/quotes/nls/dddDDD, from the portfolio a couple weeks ago. And we were once again ahead of the curve as Barron’s last weekend bashed the sector and DDD specifically in an article called “Beware 3-D Printing,” which highlighted exactly all the same reasons for selling DDD that I’d published for you guys a couple weeks ago. Namely, that the entire sector’s valuations have gone bubblicious, and that DDD specifically is seeing its margins decline and trying to hype up its stock despite the profit issues.

I wrote that “the biggest problem I’ve long had with DDD’s management is my impression that they are catering more to Wall Street and trying to keep their highflying stock hyped up.” And in the Barron’s article, the authors quoted my old buddy Whitney Tilson a rather successful mostly short-oriented hedge fund manager, saying, “DDD is better at printing press releases than profits.”

The article also specifically highlighted the declining margins in $DDD‘s business and how they are more exposed to the consumer 3-D printing market than the more stable and bigger Revolution Investing sector of selling 3-D printing technology to industrial companies, which was another reason I’d highlighted for you when the stock was $15 higher than when the Barron’s piece hit last weekend.

One of the most depressing aspects of this ongoing bubble-blowing bull market is how retail investors are once again blindly plowing into what they think are Revolution Investing sectors, such as the current fuel-cell stock frenzy and the legalized marijuana penny stock frenzy. I’ve been loudly bashing many of the stocks in those sectors that are currently up 1,000% or more over the last few weeks as the frenzy has built up. I agree that fuel cells will someday be huge and profitable, but that’s still probably a few years off before the technologies are truly competitive to the traditional gas and oil energy plays. And legalized marijuana is going to be Revolution Investing growth industries over the next decade or two.

But that doesn’t mean you just blindly go out and buy every stock you can find that says its going to be huge in those sectors. Much like I’ve spent and continue to spend endless amounts of time trying to make sure we’re got the best and safest stocks in these Revolution Investing sectors like 3-D printing, each individual stock or fund you ever buy must be researched continuously.

Best plays on fuel cells? Probably aren’t public yet. In a few more years, a new batch of fuel cell companies will be coming public that will likely be the kind of innovative companies that I’ll look to buy into. Not $BLDP, $PLUG, $FCEL.

And the best plays on legalized weed? Go read my old report on the Revolution Investing sector known as “water” and water purification and irrigation and piping, etc.

Trends, companies, developments, politics change over time and you must stay on top of all of this if you’re going to be a successful long-term investor. And just plain hype, along with fraud and theft are always rampant on Wall Street — and we also must do our best to avoid such losses along the way.

In the meantime, I promise you that the new Scutify iPad app for investors and traders will be the best one you’ve ever used. $GOOG$AMZN

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Closing note: And last night, in response to yet more questions about penny stocks, I Scuttled an old interview of mine from my old show Happy Hour on Fox in which I expose one of the many penny stock hype pushers. If you’re trading penny stocks, I suggest you watch it to learn more about who are up against.

Cody Willard writes Revolution Investing for MarketWatch, posts the trades from his personal account at TradingWithCody.com, which is not affiliated with MarketWatch, and is the largest shareholder in Scutify‘s parent company, Wall Street All-Stars. At time of publication, Cody was net long Calgon Carbon, Linsday, Apple and Google. Follow Cody on Twitter at twitter.com/codywillard.

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About The Cody Word

Cody Willard writes the Revolution Investing investment newsletter for MarketWatch and posts the trades from his personal account at TradingWithCody.com He is the founder of WallStreetAll-Stars.com and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and is on the University of New Mexico Alumni Board. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. Cody, a former hedge fund manager, and his stock picks and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.